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22
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22 (117) 2015
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Real Estate & Construction

Student Housing – An Emerging European Investment Class – ‘Food for Thought’

by Joe Daniel FCIB FRICS, chairman, MRE Partners
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Driving along Kraków’s ul. Reymonta towards the AGH University swimming pool facility, one cannot help but see the extent of the university campus with block after block of student accommodation.

Today more than 850 universities in Europe accommodate 13.6 million students on 170 million m² of gross floor space. The European Commission aims to have 20% of its students spend time in other European countries, and the €14.7 billion Erasmus-plus programme is designed to make this a reality for 4m students by 2020. Clearly this increasing student mobility is an opportunity for outdated infrastructure to be modernised, and of course for new provision.

Most of the student accommodation in continental Europe is either subsidised with public money or sourced on a bed-by-bed and house-by-house basis by students who move away from home.  In comparison to the US and the UK, this proven investment class is very much in its infancy in relation to retail, office, and logistic property. The continuing economic difficulties across global and European markets have led to a surge in domestic student numbers, driving the need for student accommodation at home, and further boosting demand for accommodation. This has helped to make student housing performance less cyclical than some other property asset classes, providing investors with stable income flows, low voids and a solid demand base.

In the current environment, institutional investors seeing lower or even negative returns from their traditional investments consider new or modernised student housing as an interesting and serious alternative, as it offers stable cash flows with generally higher returns than other real estate classes. Importantly, rather like infrastructure investment, student housing investment has the ability to meet such Institutions’ medium- to long-term liabilities as part of a diverse portfolio. The experience of university is taken very much as a ‘right of passage’ to adulthood through being away from home and this will undoubtedly reinforce the growing demand for student accommodation. 

In the German market, early investors have found success by offering a premium product to compete against the affordable not-for-profit (Studentenwerk) product. The premium approach has also worked in key Spanish cities, differentiating against an affordable private rented sector. Some institutions or developers insist that sites are within 1.5 km of the main campus which effectively means short supply and accommodation is limited, again putting downward pressure on yields. It may be that supplying the premium end of the student housing market, whereby rooms are en-suite with a kitchenette and a concierge service for students from mid-upper income brackets often from abroad, can deliver a sound long-term investment but local market and custom cannot be ignored in this market which is in its infancy.

Looking to the future, university and city representatives and institutional capital providers need to engage positively with each other. The delivery of affordable and acceptable student housing provision is vital, especially where grants and subsidies may well be subject to reduction or removal over time. The nature of higher education is changing with technological advances but, with global employers searching for human talent and skills, the universities are the vital component. 

[Sources: extracts from Property EU Editorial November 2015 and Savills World Student Spotlight 2015/16 October 2015]

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